Income Tax Act, 1961 : Income Exempted and Chargeable under the Head "Salaries"

21. Commutation of Pension - under Section10(10A)(i) & 10(10A)(ii)

Any payment in commutation of pension received under the Civil Pensions
(Commutation) Rules of the Central Government or under any similar scheme applicable to the
members of the civil services of the Union or holders of posts connected with defence or of
civil posts under the Union (such members or holders being persons not governed by the said
Rules) or to the members of the all- India services or to the members of the defence services or
to the members of the civil services of a State or holders of civil posts under a State or to the
employees of a local authority] or a corporation established by a Central, State or Provincial
Act, is exempt under Section10(10A)(i). As regards payments in commutation of pension
received under any scheme of any other employer, exemption will be governed by the
provisions of section 10(10A)(ii).

22. Leave Encashment Under Section under Section 10(10AA)(i)

Any payment received by an employee of the Central Government or a State
Government, as cash-equivalent of the leave salary in respect of the period of earned leave at
his credit at the time of his retirement, whether on superannuation or otherwise, is exempt
under Section 10(10AA)(i). In the case of other employees, this exemption will be determined
with reference to the leave to their credit at the time of retirement on superannuation or
otherwise, subject to a maximum of ten months' leave. This exemption will be further limited
to the maximum amount specified by the Government of India Notification No.S.O.588(E)
dated 31.05.2002 at Rs. 3,00,000/- in relation to such employees who retire, whether on
superannuation or otherwise, after 1.4.1998.